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How does employer power mediate the impact of labor saving technical change on inequality? This question has largely been neglected in the recent literature on the wage and distributional consequences of automation, where the labor market is assumed to be competitive.

In this CEPR Discussion paper, available for free download, Nancy H Chau and Ravi Kanbur use a simple task-based model, with search frictions which generate an equilibrium wage distribution even with identical firms and workers, to explore the implications of labor saving technical change for equilibrium outcomes. The authors show that employer power is a crucial determinant of the nuanced comparative statics of technical change.

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